By: Kevin Sollitt
Gold challenged the 1144 region but fell back almost couple of percent to around 1127 from its best levels but is still trading higher than last week when the EUR was pushing 1.5050, currently 1138 and 1.4840, respectively. The EUR failed to get above 1.5020 on an initial Asian-led stop-loss buying spree, which again indicates potential for exhaustion. In recent and previous articles we discussed correlations breaking-down and maybe telling us something, which now seems to be a developing theme.
Similarly, the RBA last night was less hawkish than had been expected so even with a relatively upbeat statement, leaving the door open rather than assuring more hikes with interest rates already some 3 percent above US rates was enough to push the Oz lower by about 1 1/2 percent from best-worst levels on the day.
This also tells us that the market may be getting wary of using the USD as a carry trade and also that up-trends in units like the AUD and NZD may be maturing in their current cycles.
We note with interest that the Kiwi is still trading at its closing level from last Friday (7440) and if any currency is glaringly overvalued, we would venture to say that it’s NZD & could be the next shoe to drop to confirm our USD correction theory, especially with the RBNZ talking it down by illustrating the ‘dull recovery’.
With the Fed’s (voting member) Lacker today talking about how the FOMC should not be paralyzed by a weak economy if inflation were to rear its ugly head, a rate rise in the US is perhaps closer than a great many market players are bargaining for.
We are still cognizant that the USD is on the back-foot as alluded to in the headline-by any traditional measure the USD should be lower whether it be on the QE/$ printing presses, the low yields, the spending/deficits, the gold price or even the disinflation shown in today’s PPI data. But it’s not, and the market is still short, both of which give us cause for pause.
In summary we expect this USD correction to continue with a risk that the market will test the 55 & 100 day moving averages, in the following pairs:
AUD down to 0.8935, then 0.8604.
EUR down to 1.4784 then 1.4486
NZD down to 0.7248 then 0.6958.
If you like the other side of the trade, perhaps USD/CAD offers the best value, rejecting 1.0620 earlier which is already close to its 55 day ma at 1.0652. Caution if placing trades, CAD CPI data is released on Nov 18.
As always we suggest protective stop-losses if trading any of these ideas but we still like the risk/reward of approximately 4 or 5:1 in each case.
Good trading,
Traditional Indicators Point to a Weaker USD, So What’s with the Rise?
DailyForex.com